Blog · 2

  1. Why does a call option move only about 40 cents when the stock moves $1?

    Delta: a call with a delta of 0.40 gains about 40 cents per share when the stock rises $1, because its strike sits above the stock price.

  2. Why does an option lose value when the stock doesn't move?

    Theta: an option's time value shrinks a little every day, so with the stock flat its price drifts lower, and the drain speeds up near expiry.

  3. Why does an option worth $0, if exercised today, still cost $3.80?

    An out-of-the-money option has no intrinsic value, so its whole price is time value: what the market pays for the chance of a move before expiry.

  4. Why can a call option expire worthless even if the stock goes up 7%?

    A call has value at expiry only above its strike and covers its cost only above break-even, so a 7% rise can still leave it at zero.

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